Proposal vs. Bankruptcy
A consumer proposal stays on one’s credit report for ~3 years after completion of the payments.
Bankruptcy appears on one’s credit report for ~6 years after discharge.
If a consumer proposal outcome results in making monthly payments for 5 or more years – the credit report would show the proposal for 8 or more years.
Question: Why would someone in this situation (5+ year consumer proposal repayment) choose a consumer proposal over bankruptcy?
It seems that consumer proposal route (with 5 years repayment + 3 years credit report impact) would impact creditworthiness for much longer than a bankruptcy (6 years credit impact).
We get this question a lot – if you don’t mind my saying so, you’re only looking at one aspect of proposals vs bankruptcies (credit reporting). You need to consider the entire picture.
Proposals generally make more sense than bankruptcy for people in the following situations:
1) they have an asset that they are trying to protect. An example might be equity in a house. Let’s say there’s $20,000 equity in your house. If you file bankruptcy and you can’t pay the trustee $20,000 then they will be required to sell your house. If you file a proposal youcan repay that equity over 5 years.
2) they have high surplus income. When you file bankruptcy, your payments are based on your income – the more you earn the higher your payments. In many cases, it makes more sense to submit a proposal to pay a lower payment (than the bankruptcy payment) but agree to pay for a longer period of time. It is simply more manageable for the family.
3) they have gambling issues. This one isn’t as obvious – if you have a problem with gambling and you file bankruptcy you will likely end up in Court and have to prove that you have the problem under control. By filing a proposal you voluntarily agree to a longer payment period and therefore avoid Court.
4) they have “subjective” issues with filing bankruptcy. Some people just aren’t comfortable with filing for bankruptcy.
This is not to say that there aren’t times when bankruptcy makes more sense – there most definitely are.
If you chief concern is your credit report (and your ability to get back into debt in the future) perhaps you need to consider whether or not you’re ready to file right now.
Give a trustee a call – they will review all your options in detail and then you can decide for yourself which makes the most sense for you.